Yahoo Finance The Merge is upon us: Here's what you need to know about the major Ethereum network upgrade
This week, the Ethereum blockchain is expected to finally undergo a long-awaited upgrade known as “The Merge.” The transition, which will shift the network to a proof-of-stake system from the current proof-of-work method, is expected to cut down on costs and energy use and make it possible to grow the ecosystem more quickly. Stephanie Hughes breaks down the details of the upgrade, who it helps and who it hurts.
What is the Ethereum Merge?
In short, the Ethereum Merge describes the joining of Ethereum’s proof-of-stake (PoS) Beacon Chain with the current Ethereum Mainnet, marking the end of the proof-of-work (PoW) consensus mechanism for Ethereum. PoS is a process that allows crypto owners to validate transactions on the blockchain network based on the number of coins the validator stakes. This comes in contrast with PoW, which has blockchain participants solving mathematical puzzles using computers to mine cryptocurrencies, a process that requires a large amount of computing power and energy.
The Ethereum Foundation has called the Merge the “most significant upgrade in the history of Ethereum,” pointing out that the shift will expand the breadth of activities that can take place on the blockchain network beyond what would be possible under a PoW framework. The Merge is expected to reduce Ethereum’s energy usage by about 99.9 per cent, addressing the long-standing criticism that the mining process and cryptocurrencies in general are environmentally unfriendly.
When is it happening?
The Ethereum Merge has hit multiple delays and snags since the upgrade was first announced in 2014, but crypto enthusiasts are now widely expecting the implementation to take place on Sept. 15.
Who does this help?
The Merge is expected to be a positive for companies and investors in the space. While it is not guaranteed to boost the price of Ethereum and isn’t expected to reduce transaction fees, the anticipation surrounding the potential for larger scaling opportunities to support future projects is what is driving excitement about the project.
Brian Mosoff, chief executive officer at Ether Capital, characterized this merge as a back-to-basics moment where investors and market participants can turn their attention away from shinier headline-grabbing parts of the market like non-fungible tokens (NFTs) and focusing more on the infrastructure.
Who could it hurt?
Because the Merge will see Ethereum move away from PoW mining processes, cryptocurrency miners are likely to be most adversely affected. During an operations update published in August, Canadian crypto miner Hut 8 Mining noted its Ethereum-mining business generated about 10.7 per cent of its total production as of July 31. The company, which mines bitcoin and Ethereum, told the Financial Post that it has other options to explore to diversify its business lines.
“We are watching the lead up to the Ethereum Merge very closely, and have a number of options that we can pursue once it occurs, including mining the next most profitable proof-of-work digital asset,” said a company spokesperson, adding that Hut 8 had been investing in its data center business as a way to broaden its revenue base.
Other miners may have to lean on other asset classes or services once the Merge occurs.
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What could go wrong?
While most crypto enthusiasts expect the Merge to move ahead without a hitch, there is still a small risk that it may not be successful, something that could wipe out billions of dollars in Ethereum market cap that have built up in anticipation of the move. There are also potential security risks: According to CoinDesk, some PoW advocates have noted that PoW has a more extensive track record than PoS, which has not been tested against increasingly sophisticated cyberattacks.
The buzz surrounding the upgrade could also give rise to scams. Already, the Ethereum Foundation has warned users about attempts to trick holders of Ethereum into exchanging them for a fake “Eth2” currency that scammers say is needed to operate on the new protocol. No such currency is needed.
• Email: shughes@postmedia.com | Twitter: StephHughes95
